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By Tim Seymour

It now looks like the idea of taxing new investments by foreigners has failed, forcing the Brazilian government to come up with new measures to restrain the local real currency.

Brazilian capital markets have taken in a net $33.45 billion this year, with $10 billion of it coming in during the otherwise unsteady month of March — when stocks and Brazil-oriented mutual funds were grinding their gears.

But as a result, the real is appreciating again against other global currencies, and the government is concerned.

The question is just what the finance ministry can do beyond taxing new flows. Interest rates are already rising to curb inflation, and in many ways Brazil’s high interest rates — starting at close to 12% — are part of the problem, since they are luring foreign money desperate for yields.

Even now, Brazil charges an extra 6% on all foreign bond buys.

You have not heard the last of terms like “currency war” from Brazil or other disgruntled emerging markets with overvalued currencies. And yes, make no mistake: the real is overvalued.

Presumably, that means currency funds like BZF are overvalued too:

Source: Make No Mistake: The Real Is Overvalued as Currency War Continues in Brazil